Nestled in the heart of Prime Central London, Kensington continues to set the standard for luxury living in the capital. The area's elegant mix of grand houses, often situated in the most prestigious squares, attracts families from around the globe.
Kensington High Street, the birthplace of the modern department store, has undergone a resurgence in recent years, putting the area back on the radar of West End shoppers. It's unique story and prime location has helped the W8 housing market outperform its neighbours in recent years.
The last 18 months
Property prices in Kensington are on the road to recovery following their 3% dip last year when higher mortgage rates and broader economic uncertainty took their toll. The average value of a home in W8 rose to £1,562 per square foot so far this year, 2.0% higher than in 2023. This means that Kensington has outperformed its Prime Central London (PCL) neighbours, where average prices have fallen a further 0.7% so far this year.
Cash plays a big role in W8. Around 63% of people looking to buy in the area planned to purchase a property without a mortgage. This is around twice the national average which has sheltered Kensington’s market from higher mortgage rates.
However, buying property in Kensington comes at a premium. Three-quarters of homes sold in W8 over the last year cost over £1m, with prices commanding 290% more than the London average.
The longer-term picture
Since 2019, the average price of a home in Kensington has grown twice as much as the rest of PCL, rising 12% compared to 5% elsewhere. This trend reflects the "race for space" seen across the country post-Covid, with buyers prioritising larger homes and outdoor spaces. Despite Kensington’s central location, the abundance of larger homes in the area catered to these needs. Around 87% of applicants looking to buy in Kensington are searching for a home to live in.
Looking a little further back, Kensington has not been immune to Prime Central London’s slowdown which began after the market’s peak in 2014. The average pound per square foot value of a W8 home is still 7% less than it was a decade ago, despite prices across the capital rising 26%.
Tax changes - hitting more expensive homes hardest – combined with Brexit, which has dampened international demand, have weighed on the market. These price falls have also kept some households in their homes for longer, reducing the number of homes being sold.
However, Kensington has outperformed longer-term. House prices in the area have risen 65% since 2008, when the current property cycle began, outpacing the England and Wales average of 49%. Most of this growth occurred between 2009 and 2014, with prices then stalling across much of PCL.
Rising rents
Like many Inner London locations, rents in Kensington have softened following 18% growth between 2019 and 2022. So far this year the average rent in W8 has fallen 1.1% year-on-year to £6,970 pcm. Smaller homes have seen the biggest declines, whilst larger rental homes have held their value.
This trend plays out longer-term too. Since 2019, the average three-bed rent is up 39%, more than triple the 12% growth recorded for a one-bed.
Yields have reached a new high in Kensington and Chelsea. The average investor who purchased a buy-to-let in the borough this year achieved a gross yield of 5.5%, up from 4.9% in 2023 and 4.0% in 2019. Generally, rents have been rising faster than house prices, which has, on paper, boosted investor returns.
What's next?
Mortgage rate falls over the last 12 months are starting to stabilise property prices both locally and across London. We might even see a little bit of growth in London this year, where prices took a bigger hit in 2023.
Looking ahead, we’re expecting a new property cycle to begin in 2025. Historically, Prime Central London areas have kickstarted that growth and we expect this trend to be repeated, particularly given that some of the political uncertainty has now cleared. We forecast house prices to rise 5.0% across London in 2025, with prime areas leading the way.
We’re also forecasting rents to increase 4% across London in 2025. Longer-term supply issues and higher landlord costs will keep rents rising faster than pre-Covid levels and outpacing inflation.
